Two Big Nursing Home Operators Reach Agreement to Merge

Published: June 11, 1998

The Health Care and Retirement Corporation and Manor Care Inc. agreed to merge yesterday in a stock swap valued at about $2.45 billion, creating one of the nation's largest operators of nursing homes.

Each share of Manor Care, based in Gaithersburg, Md., will be exchanged for one share of Health Care and Retirement. The new company will be called HCR Manor Care and will be based in Toledo, Ohio, where Health Care and Retirement is based. It will have pro forma total debt of $771 million.

The transaction, which will immediately add to Health Care and Retirement's earnings, will create a company with a market value of about $4 billion and total revenue of $2.26 billion, the companies said.

Nursing homes have been under pressure to cut costs since the Clinton Administration acted last month to reduce Medicare payments to them an average 17 percent. HCR Manor Care will be the largest company in the industry in market value and one of the biggest in sites.

''This is a stellar deal,'' said Charles Lynch, an analyst for Schroder & Company, who has an ''outperform significantly'' rating on Health Care and Retirement. ''They will be able to focus on continuing the development of assisted-living facilities with cash to spare.''

Manor Care shares, which were suspended pending the announcement, shot up $4.5625, to $35.5625. Health Care and Retirement fell 62.5 cents, to $37.125.

While Manor Care shareholders will end up owning about 58 percent of the combined companies, in many ways Health Care and Retirement is acquiring the larger company.

In addition to keeping the headquarters in Toledo, the agreement makes Health Care and Retirement's chairman and chief executive, Paul Ormond, 48, president and chief executive of the combined entity, while Manor Care's chairman and chief executive, Stewart Bainum Jr., 52, will be chairman. Board representation will be evenly divided.

Cost savings should reach at least $30 million in the first year of operation, the companies said. The transaction should be completed in the fourth quarter.

The new company will have about 295 nursing homes, 76 outpatient therapy clinics, 116 rehabilitation centers and 47 assisted-care facilities. It will be in 32 states, with Pennsylvania, Ohio, Florida, Illinois and Michigan ranking as the top ones.

John Hindelong, analyst for Donaldson, Lufkin, & Jenrette Securities Inc., said the merger would take advantage of a ''rapid proliferation'' in the trend of elderly Americans to move into assisted-living quarters.